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July 2000 Manufacturing Report On Business®

FOR RELEASE: August 1, 2000

Contact: Kristen Kioa
  NAPM, Media Relations
  Tempe, Arizona
  800/888-6276, Ext. 3015
GROWTH IN MANUFACTURING CONTINUES IN JULY SAY PURCHASING EXECUTIVES IN LATEST MANUFACTURING NAPM REPORT ON BUSINESS®

DO NOT CONFUSE THIS NATIONAL REPORT with the various regional purchasing reports released across the country. The national report's information reflects the entire United States, while the regional reports cover only their local vicinity. Also, the information in the regional reports is not used in calculating the results of the national report. The information compiled in this report is for the month of July 2000.

Purchasing Managers' Index (PMI) at 51.8%

Growth in Production Prices and Employment Increasing
New Orders and Imports Declining

(Tempe, Arizona) — Economic activity in the manufacturing sector grew for the 18th consecutive month in July. The overall economy continued to grow in July for the 111th consecutive month say the nation's purchasing executives in the latest Manufacturing NAPM Report On Business®.

The report was issued today by Norbert J. Ore, C.P.M., chair of the National Association of Purchasing Management's Manufacturing Business Survey Committee and vice president, purchasing and strategic alliances, Chesapeake Display and Packaging Company. "The manufacturing sector continued to expand in July, but with some measure of softening as both New Orders and Imports declined. Production continued to grow, though at a slightly slower rate. The NAPM Prices Index continues to indicate manufacturers are paying higher prices for their purchases and manufacturing employment grew in July at an accelerating rate when compared to June."

NAPM's Backlog of Orders Index indicates that order backlogs declined for the third consecutive month. NAPM's Supplier Deliveries Index again signals slowing deliveries, but at a slightly slower rate. Manufacturing Employment growth quickened during July as the index rose above the breakeven point (an index of 50) for the 15th consecutive month. NAPM's Price Index gained some momentum and prices have now increased for 15 consecutive months. The rate of growth in New Export Orders slowed in July. Imports declined in July after 17 consecutive months of growth. Comments from purchasing managers this month generally expressed concerns about prices in general and energy prices in particular, a slowing construction market, SUV sales, and the tight labor situation. Members also indicated strength in the technology sector, with shortages of capacitors and memory a particular concern.

NAPM's Purchasing Managers' Index was 51.8 percent in July, the same index reading as June. NAPM's Production Index decreased 0.2 percentage point from 53.6 percent in June to 53.4 percent in July. NAPM's New Orders Index declined 0.7 percentage point from 50.6 percent in June to 49.9 percent in July. NAPM's Backlog of Orders Index registered 45 percent, indicating smaller backlogs for the third consecutive month. NAPM's Supplier Deliveries Index is 54.2 percent in July, indicating slower deliveries during the month. The NAPM Employment Index is at 52.7 percent for July, an increase of 1.9 percentage points when compared to the 50.8 percent reported in June. NAPM's Price Index in July is 61.9 percent, an increase of 0.7 percentage point from June's 61.2 percent.

NAPM's Inventories Index is at 48.4 percent indicating a slower rate of inventory liquidation when compared to June's 47.4 percent. Responding to a special monthly question concerning customers' inventories of products purchased from the purchasers' organizations, 10 percent of the purchasing executives felt they were too high (same as June), while 11 percent felt they were too low (down from 16 percent in June) and 79 percent thought they were about right (up from 74 percent in June).

NAPM's New Export Orders Index continued positive for the 18th consecutive month though the index declined to 51.5 percent from 53.2 percent in June. Imports of materials by manufacturers weakened slightly as NAPM's Imports Index is 49.8 percent in July, down from June's 56 percent.

"The overall picture is one of slower growth in manufacturing activity during the month of July," added Ore. "Though there is still significant pricing power in many markets, leveling of the rate of increase in the Prices Index can be viewed as positive. Energy prices continue to be viewed as a major concern as increased OPEC production levels are still questionable."

Of the 20 industries in the manufacturing sector, 11 reported improved business in July. Industries that reported improvement over June were (listed in order): Furniture; Instruments & Photographic Equipment; Electronic Components & Equipment; Food; Chemicals; Printing & Publishing; Industrial & Commercial Equipment & Computers; Rubber & Plastic Products; Wood & Wood Products; Glass, Stone & Aggregate; and Transportation & Equipment.

"Capacitors; Capacitors – Tantalum; Electrical Components; Electronics; Flash Memory; and Memory are the commodities reported on the Short Supply List. Commodities with reports of price increases: Aluminum; Caustic Soda (also reported down in price); Chemicals; Copper; Corrugated Containers; Ethylene; Natural Gas; Packaging; Paper; Petroleum Products; Plastics; Plastic Resins; Propylene; Resins; Solvents; Stainless Steel; and Steel (also reported down in price); Transportation; and Wood Pulp. Caustic Soda (also reported up in price); Nickel; and Steel (also reported up in price) are the commodities reported down in price," Ore stated.

JULY 2000 NAPM BUSINESS SURVEY AT A GLANCE
Series July
Index
Direction
July vs June
Rate of Change
July vs June
PMI 51.8 Growing Same
Production 53.4 Growing Slower
New Orders 49.9 Contracting From Growing
Backlog of Orders 45.0 Contracting Faster
Supplier Deliveries 54.2 Slowing Slower
Inventories 48.4 Contracting Slower
Employment 52.7 Growing Faster
Prices 61.9 Increasing Faster
New Export Orders 51.5 Growing Slower
Imports 49.8 Contracting From Growing

THE ECONOMY AT A GLANCE
Overall Economy Growing Same
Manufacturing Growing Same

Purchasing Managers' Index (PMI)

The Purchasing Managers' Index (PMI) indicates that the manufacturing economy continued to grow during the month of July with an index of 51.8 percent, the same rate of growth as experienced in June. July is the 18th month that the index has been above 50. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

A PMI in excess of 42.4 percent, over a period of time, generally indicates an expansion of the overall economy. Ore added, "The past relationship between the PMI and the overall economy indicates that the average PMI for the months of January through July (54.4 percent) corresponds to a 4.3 percent annual increase in real gross domestic product (GDP). However, if the PMI for July (51.8 percent) turned out to be the annual average for 2000, this would correspond to a 3.4 percent increase in GDP."

Month July '00 Jun '00 May '00 Apr '00 Mar '00
PMI% 51.8 51.8 53.2 54.9 55.8
Month Feb '00 Jan '00 Dec '99 Nov '99 Oct '99
PMI% 56.9 56.3 56.8 57.1 56.9
Month Sep '99 Aug '99 July '99 Jun '99 May '99
PMI% 57.3 54.4 53.6 56.3 54.4

Production

NAPM's Production Index grew in July, but the rate of growth continues to decelerate as it has done for the last four months. However, this is the 19th consecutive month of growth. The index is 53.4 percent, a decrease of 0.2 percentage point when compared to the June index of 53.6 percent.

An index above 49.4 percent, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures. Industries showing the highest rate of growth in production for July were (listed in order): Furniture; Printing & Publishing; Electronic Components & Equipment; Chemicals; Industrial & Commercial Equipment & Computers; Food; and Transportation & Equipment.

Production %Better %Same %Worse Net Index
July 2000 19 63 18 +1 53.4
June 2000 25 58 17 +8 53.6
May 2000 30 58 12 +18 56.3
April 2000 34 56 10 +24 58.2

New Orders

NAPM's New Orders Index failed to grow in July for the first time in 19 months. The index at 49.9 represents a decrease of 0.7 percentage point when compared to 50.6 percent in June. A New Orders Index above 50.4 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 1987 dollars).

For the month of July, seven industries reported higher rates of increase in new orders. They were (listed in order): Instruments & Photographic Equipment; Glass, Stone & Aggregate; Chemicals; Food; Furniture; Rubber & Plastic Products; and Industrial & Commercial Equipment & Computers.

New Orders %Better %Same %Worse Net Index
July 2000 23 56 21 +2 49.9
June 2000 27 50 23 +4 50.6
May 2000 28 53 19 +9 51.1
April 2000 36 51 13 +23 56.3

Backlog of Orders

The Backlog of Orders Index failed to grow for the third consecutive month in July. NAPM's Backlog of Orders Index (not seasonally adjusted) registered 45 percent. Of the 90 percent of respondents who measure their backlog of orders, 17 percent reported greater backlogs, 27 percent reported smaller backlogs, and 56 percent reported no change from June. Four industries reported an increase in backlog of orders during the month: Instruments & Photographic Equipment; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Electronic Components & Equipment; and Food.

Backlog
of Orders
%Reporting %Greater %Same %Less Net Index
July 2000 90 17 56 27 -10 45.0
June 2000 90 23 51 26 -3 48.5
May 2000 88 19 60 21 -2 49.0
April 2000 89 23 56 21 +2 51.0

Supplier Deliveries

NAPM's Supplier Deliveries Index in July indicates delivery performance continued to slow at a slightly decelerating rate, with an index reading of 54.2 percent (a reading below 50 indicates faster delivery performance). The index is 0.9 percentage point lower than June's 55.1 percent. July marks the 15th consecutive month that the index has registered above 50. The industries reporting slower supplier deliveries in July were: Electronic Components & Equipment; Instruments & Photographic Equipment; Rubber & Plastic Products; Wood & Wood Products; Furniture; Chemicals; Fabricated Metals; Primary Metals; Paper; Printing & Publishing; Transportation & Equipment; and Food.

Supplier
Deliveries
%Slower %Same %Faster Net Index
July 2000 13 84 3 +10 54.2
June 2000 13 83 4 +9 55.1
May 2000 14 83 3 +11 55.0
April 2000 15 81 4 +11 55.6

NOTE: A list of commodities in short supply is available at the end of this report.

Inventories

Manufacturers' inventories are still being liquidated, however, the rate of change is slower as the Inventories Index registered 48.4 percent, up from 47.4 percent in June. An Inventories Index greater than 41.1 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis' (BEA) figures on overall manufacturing inventories (constant 1987 dollars). The five industries reporting higher inventories in July over June were: Apparel; Primary Metals; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Transportation & Equipment; and Industrial & Commercial Equipment & Computers.

Inventories %Higher %Same %Lower Net Index
July 2000 13 69 18 -5 48.4
June 2000 13 68 19 -6 47.4
May 2000 15 64 21 -6 47.1
April 2000 13 68 19 -6 45.2

Employment

NAPM's Manufacturing Employment Index continued above 50 in July for the 15th consecutive month. The rate of growth is accelerating as the index registered 52.7 percent in July compared to 50.8 percent in June, an increase of 1.9 percentage points. An Employment Index above 47.2 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment. Seven industries indicated growth in employment: Furniture; Printing & Publishing; Food; Fabricated Metals; Industrial & Commercial Equipment & Computers; Wood & Wood Products; and Electronic Components & Equipment.

Employment %Higher %Same %Lower Net Index
July 2000 19 68 13 +6 52.7
June 2000 20 67 13 +7 50.8
May 2000 23 66 11 +12 54.1
April 2000 20 70 10 +10 53.2

Prices

NAPM's Price Index indicates manufacturers continued to pay higher prices in July. With the index at 61.9 percent, there is a slight acceleration in the rate from June as the index is 0.7 percentage point higher than June's mark of 61.2 percent. This index has been above 50 percent for 15 consecutive months, with the last 11 months above 60 percent. In July, 33 percent of purchasing executives reported paying higher prices and 7 percent reported paying lower prices, while 60 percent reported that prices were unchanged from the preceding month.

A Price Index below 46.3 percent, over time, is generally consistent with a decrease in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices. The 19 industries paying higher prices were: Glass, Stone & Aggregate; Apparel; Wood & Wood Products; Chemicals; Tobacco; Electronic Components & Equipment; Paper; Instruments & Photographic Equipment; Petroleum; Primary Metals; Textiles; Printing & Publishing; Miscellaneous (a preponderance of jewelry, toys, sporting goods, musical instruments); Furniture; Rubber & Plastic Products; Transportation & Equipment; Food; Industrial & Commercial Equipment & Computers; and Fabricated Metals.

Prices %Higher %Same %Lower Net Index
July 2000 33 60 7 +26 61.9
June 2000 34 60 6 +28 61.2
May 2000 38 59 3 +35 65.8
April 2000 51 44 5 +46 76.0

NOTE: A list of commodities up in price and down in price is available at the end of this report.

New Export Orders

NAPM's New Export Orders Index for July continued positive (an index exceeding 50 percent) for the 18th consecutive month. NAPM's New Export Orders Index declined 1.7 percentage points to 51.5 percent from 53.2 percent in June. Industries reporting growth in new export orders in July were:

Electronic Components & Equipment; Chemicals; Industrial & Commercial Equipment & Computers; Food; Fabricated Metals; and Transportation & Equipment.

New Export
Orders
%Exporting %Better %Same %Worse Net Index
July 2000 79 13 78 9 +4 51.5
June 2000 78 17 75 8 +9 53.2
May 2000 77 20 73 7 +13 56.3
April 2000 76 11 83 6 +5 50.7

Imports

Imports of materials by manufacturers failed to grow in July, ending 17 consecutive months of growth in the index. The Imports Index registered 49.8, 6.2 percentage points lower than June's report of 56 percent. The four industries reporting growth in import activity for July were: Furniture; Industrial & Commercial Equipment & Computers; Electronic Components & Equipment; and Fabricated Metals.

Imports %Importing %Higher %Same %Lower Net Index
July 2000 77 11 78 11 0 49.8
June 2000 79 17 79 4 +13 56.0
May 2000 77 20 72 8 +12 54.7
April 2000 78 13 84 3 +10 55.1

Buying Policy

Average commitment leadtime for Capital Expenditures declined 4 days to 116 days. Average leadtime for Production Materials increased 1 day to 48 days. Average leadtime for Maintenance, Repair, and Operating (MRO) supplies declined 2 days to 23 days.

Percent Reporting
  Hand
To
Mouth
30
Days
60
Days
90
Days
6
Mos.
1
Year+
Avg.
Days
Capital Expenditures              
July 2000 18 10 15 22 24 11 116
June 2000 18 8 14 20 30 10 120
May 2000 21 8 16 17 29 9 113
April 2000 22 9 17 23 21 8 101
Production Materials              
July 2000 22 38 27 7 5 1 48
June 2000 22 41 23 10 2 2 47
May 2000 23 39 23 11 4 0 44
April 2000 25 41 18 12 2 2 46
MRO Supplies              
July 2000 48 36 14 2 0 0 23
June 2000 51 36 9 3 0 1 25
May 2000 50 35 11 3 1 0 24
April 2000 48 38 11 2 0 1 26

In Short Supply

Capacitors; Capacitors — Tantalum; Electrical Components; Electronics — 5th month; Flash Memory; and Memory.

Up in Price

Aluminum; Caustic Soda (also shown down in price); Chemicals; Copper; Corrugated Containers — 17th month; Ethylene; Natural Gas — 7th month; Packaging; Paper — 14th month; Petroleum Products — 6th month; Plastics — 9th month; Plastic Resins — 3rd month; Propylene; Polystyrene; Resins — 11th month; Solvents; Stainless Steel — 12th month; Steel — 12th month (also shown down in price); Transportation; and Wood Pulp.

Down in Price

Caustic Soda — 4th month (also shown up in price); Nickel; and Steel — 2nd month (also shown up in price).

Data and Method of Presentation

The Manufacturing NAPM Report On Business® is based on data compiled from monthly replies to questions asked of purchasing executives in over 350 industrial companies. Membership of the Business Survey Committee is diversified by Standard Industrial Classification (SIC) category, based on each industry's contribution to Gross Domestic Product (GDP). Twenty industries from various U.S. geographical areas are represented on the committee.

Survey responses reflect the change, if any, in the current month compared to the previous month. For each of the indicators measured (New Orders, Backlog of Orders, New Export Orders, Imports, Production, Supplier Deliveries, Inventories, Employment, and Prices), this report shows the percentage reporting each response, the net difference between the number of responses in the positive economic direction (higher, better, and slower for Supplier Deliveries) and the negative economic direction (lower, worse, and faster for Supplier Deliveries), and the diffusion index. Responses are raw data and are never changed. The diffusion index includes the percent of positive responses plus one-half of those responding the same (considered positive).

The resulting single index number is then seasonally adjusted to allow for the effects of repetitive intrayear variations resulting primarily from normal differences in weather conditions, various institutional arrangements, and differences attributable to nonmoveable holidays. All seasonal adjustment factors are supplied by the U.S. Department of Commerce and are subject annually to relatively minor changes when conditions warrant them. The PMI is a composite index based on the seasonally adjusted diffusion indices for five of the indicators (New Orders, Production, Supplier Deliveries, Inventories, and Employment) with varying weights.

Diffusion indices have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change and the scope of change. A PMI reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent that it is generally declining. A PMI over 42.4 percent, over a period of time, indicates that the overall economy, or Gross Domestic Product (GDP), is generally expanding, below 42.4 percent, that it is generally declining. The distance from 50 percent or 42.4 percent is indicative of the strength of the expansion or decline. With some of the indicators within this report, NAPM has indicated the departure point between expansion and decline of comparable government series, as determined by regression analysis.

Responses to Buying Policy reflect the percent reporting the current month's leadtime, the approximate weighted number of days ahead for which commitments are made for Production Materials, Capital Expenditures, and Maintenance, Repair, and Operating (MRO) Supplies, expressed as hand-to-mouth (five days), 30 days, 60 days, 90 days, six months (180 days), a year or more (360 days), and the weighted average number of days. These responses are raw data, never revised, and not seasonally adjusted since there is no significant seasonal pattern.

The Manufacturing NAPM Report On Business® is published monthly by the National Association of Purchasing Management, the largest purchasing and supply management research and education organization in the United States. NAPM is comprised of 181 affiliates with more than 45,000 members in the United States. The report has been issued by the association since 1931, except for a four year interruption during World War II.

The full text version of the Manufacturing NAPM Report On Business® is posted on NAPM's Web site at www.ism.ws on the first business day of every month after 10:10 a.m. (ET).

The next Manufacturing NAPM Report On Business® featuring the August 2000 data will be released at 10:00 a.m. (ET) on September 1, 2000.



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